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Wholesale inflation dropped to a new multi-year low in October, helped by slower annual rises in food and fuel prices, intensifying pressure on the central bank to cut interest rates to encourage spending and investment needed to boost growth.
The wholesale price index rose an annual 1.77% last month, its slowest since September 2009, compared with the 2.20% forecast by economists in a Reuters poll.
Friday's data comes days after consumer price inflation had dropped to 5.52% in October, below the Reserve Bank of India's 6% target for January 2016.
"With inflation at or under 6% we think RBI is likely to face pressure to ease, not just from the government, but also from RBI's own policy committee," said Devika Mehndiratta, a senior economist at Australia and New Zealand Banking Group Ltd in Singapore.
She expects retail inflation to hit a low of close to 4% in November, opening up an opportunity for a 25 basis points rate cut in the second quarter of 2015.
Indian businesses have been pleading for a cut in interest rates, which are among the highest in Asia, to stimulate consumption in a domestic demand-driven economy.
Consumer goods output - a proxy for consumer demand that drives 60% of India's economy - has grown in just two of the last 21 months. It fell an annual 4.0% in September.
The RBI is meeting on Dec 2 to review policy, having kept its key repo rate steady at 8.0% since January.
A Reuters poll last month had shown that economists expected rates to be held unchanged until well into next year, due to worries that price pressures would revive once a favourable base effect fades out and food prices rise after a poor summer rains.
Bond traders are betting on one of the biggest interest rate reductions among major emerging markets once the rate cutting cycle begins.
The 10-year benchmark bond yield had dropped 36 basis points since Oct. 1 until the last session on hopes of a rate cut.
